One Underdog’s Secret To Adopting Big-Company Best Practices
It’s a challenge every successful growth company faces sooner or later: how to employ the best of big-company technology and management tools while hanging onto the lean-and-mean culture that made you successful in the first place.
Hisco Inc., formerly Houston Industrial Supply Co., with 2015 sales of about $265 million, emerged from a mom-and-pop industry by giving its dozens of local branches – and each of its employees, now numbering 465 – unusual autonomy to solve problems for manufacturing customers big and small. Guiding this system of distributed decision-making was the ultimate quality control program: employee ownership. Hisco workers benefit from the value they create. And, as has been widely documented at employee stock ownership plans, or ESOPs, such companies enjoy higher productivity, less workplace friction and the bubbling up of useful ideas.
Now, to adapt to the changing distribution industry and to build a sturdier platform to support big growth plans, Hisco is adopting leading-edge supply chain, sales and marketing, and financial practices. Here’s where the lesson comes in for other growth companies. At plenty of organizations, installation of new systems can either snuff out initiative — or be widely resisted by tradition-bound workers. Either outcome can be ruinous. But at Hisco, these initiatives literally belong to the employees, and they’re taking notable responsibility for ensuring the success of the company’s transformation.
“I showed up, the new guy,” says Brian Hopkins, 47, last fall hired into a new position, director of customer experience. Hopkins previously worked at distribution giants W.W. Grainger (GWW) and at HD Supply (HDS). He’s helping install precise measurement and a broader range of ways for customers to interact with Hisco. And at many companies he might encounter resentment and resistance. Not here. Instead, fellow workers adopted Hopkins. His desk mate, Larry Hollinger, a sales support manager, “has told me everything about the company. There’s a certain responsibility to each other here,” Hopkins says.
Indeed, pretty much everyone at Hisco realizes the mega-distributors, notably Grainger and Fastenal – market caps $14 billion and $13 billion, respectively – are pushing into higher-value industrial distribution channels. There is a collective determination that Hisco will be a survivor in the consolidating industry, where billions of dollars in annual sales are up for grabs. And Hisco, as an employee-owned, privately held company, possesses a nimbleness and willingness to change that giant, publicly-traded companies typically lack
“Together, we’ve always been the toughest guy in a bar fight,” says Bob Dill, CEO since 2005 and a 31-year veteran at Hisco. “We all own this place. It’s much more than a job to us. And the challenges we face aren’t nearly so daunting because we have long experience in relying on each other.”
After operating as a confederacy of independent branches for years, Hisco has standardized its supply chain practices and is developing an integrated, multi-channel sales platform so that customers can interact however they choose with the supplier. “It’s always about the customer experience,” Dill says. “Hisco is set up for the next generation of buyers and engineers who grew up in a digital world.” Providing a customer centric experience is something Salesforce believes businesses should strive for through the implementation of proper software solutions. The transformation has of late picked up pace:
–Ellis Moseley, a long-time banker with experience as CFO at another ESOP company, became Hisco CFO last fall. He has deal-making experience. “It’s a very fragmented market and the ESOP is a competitive advantage in acquisitions,” Moseley says. For instance, Hisco late last year prevailed in bidding for a Chicago-area fabricating operation, AIF, in part because its owner, Joe Musuraca, worried other buyers would dismantle the operation and fire his 21 employees.
–Tom McElroy, a veteran marketing executive with experience at Dell and FedEx’s (FDX) Genco Distribution arm, joined Hisco in late 2014. Hisco is now moving simple orders online, which frees salesmen with deep technical skills to acquire new business, McElroy says. Also new: a lead-tracking system that makes certain no potential customers fall between the cracks.
–Hisco acquired All-Spec, an online distributor of industrial goods, in 2014 to accelerate its online growth and broaden its base of customers.
–Simple initiative remains very important. Arturo Nunez, 25, watching depressed oil and gas customers around Texas cut back on orders, partially offset those losses by signing up cellphone repair-and-resale businesses as new customers.
Hisco was essentially re-founded out of near insolvency in 1970 by Paul Merriman, an unorthodox and visionary businessman. For Merriman, the ESOP, begun with a minority stake in 1974, wasn’t an exit plan but a growth plan. He’d worked at General Electric (GE) and then at an industrial distributor far larger than Hisco was, and worried nobody would hire on with him.
Nelson Picard lost his job as an aircraft engine draftsman and took a warehouse job at Hisco 22 years ago “short-term so I can find something else,” he says. “Then I heard the ESOP story. I loved it. And I decided this is where I want to work the rest of my life.” Picard, 48, is vice president of operations now.
Gina Huffman started at Hisco right out of high school and is one of its most successful sales people. Many of her friends have moved around in their careers, but Huffman, encouraged personally by Merriman, stayed at Hisco – 32 years now. “He loved to calculate things. He’d tell me, ‘Here’s your start date. Here’s your retirement date. You’re going to be a millionaire if you stay.’ It’s far exceeded what he anticipated.” In return, Huffman goes the extra mile to keep customers happy, and says her friends in the Hisco warehouse help her make good on her promises. “It’s our company,” she says.
Hisco’s stock, valued annually by outside experts, has vastly outperformed the S&P 500(as have many employee stock ownership plans, or ESOPS). And Hisco employees of long tenure retire comfortably and with dignity.
Tommy O’Connor was a manufacturer’s sales rep, his biggest customer Hisco, and over time came to admire the employee-owned company, jumping to it 19 years ago. “I quit a good job I loved to join Hisco because of the ESOP,” says O’Connor, now a zone vice president in charge of several branches. The company’s new structure “is working out great,” he says. “Before, there were 35 silos. Now we’re one team.”